CATCHWORDS

 

 

 

TRADE PRACTICES - s 52 misleading and deceptive conduct - representations of weekly turnover and gross profit margins made during negotiations for the purchase of a delicatessen franchise - reliance on representations

 

TRADE PRACTICES - s 82 damages - measure of damages available due to reliance on misleading representations includes a component for consequential loss suffered after the date of purchase

 

TRADE PRACTICES - s 87 avoidance order of franchise agreement refused

 

PRACTICE AND PROCEDURE - valid cross-claim entitling the first respondent corporation to a set-off in reduction of its liability to applicants on their claim - other respondents liable to applicants under s 82 on the ground of their involvement in first respondent's conduct not entitled to rely on first respondent's set-off to reduce the amount of their liability to applicants - all respondents liable concurrently and severally, not jointly

 

 

 

 

 

Income Tax Assessment Act 1936 (Cth) - s 60(2)

Income Tax Ruling - 2354

Trade Practices Act 1974 (Cth) - ss 52, 75B, 82 and 87

 

 

 

Gates v The City Mutual Life Assurance Society Limited (1986) 160 CLR 1 Followed

Gould v Vaggelas (1985) 157 CLR 215 Considered

Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (1988) 79 ALR 83 Followed

JAD International Pty Ltd v International Trucks Australia Limited (1994) 50 FCR 378 Followed

BO Morris Ltd v Perrott and Bolton [1945] 1 All ER 567 Followed

Netaf Pty Ltd v Bikane Pty Ltd (1990) 92 ALR 490 Applied

Re Sgambellone; Ex parte Jacques (1994) 126 ALR 71 Referred to

Tomlinson v Cut Price Deli Pty Ltd (1992) 112 ALR 122 Followed

In re K.L. Tractors Ltd [1954] VLR 505 Referred to

Trade Practices Commission v Manfal Pty Ltd (No 3) (1991) 33 FCR 382 Considered

Walker v Secretary, Department of Social Security (1994) 120 ALR 123 Referred to

Wardley Australia Limited v The State of Western Australia (1992) 175 CLR 514 Considered

Yorke v Ross Lucas Pty Ltd (1983) 68 FLR 268 Applied

Zycinski v City of Footscray (Gobbo J, unreported, 22 December 1992) Considered

 

 

 

 

 

Peter John Tomlinson and Jean Tomlinson

v Cut Price Deli Pty Limited & Ors.

QG 72 of 1991

 

 

 

 

 

Drummond J

Brisbane

12 July, 1995 and 18 August, 1995

IN THE FEDERAL COURT OF AUSTRALIA)    No. QG 72 of 1991

QUEENSLAND DISTRICT REGISTRY      )

GENERAL DIVISION                  )

 

 

          BETWEEN:  PETER JOHN TOMLINSON and

                   JEAN TOMLINSON

 

                                      Applicants

 

          AND:      CUT PRICE DELI PTY. LIMITED

 

                                      First Respondent

 

          AND:      ENZO SGAMBELLONE

 

                                      Second Respondent

 

          AND:      HARRY MALOVANY

 

                                      Third Respondent

 

          AND:      PETER HOEFLER

 

                                      Fourth Respondent

 

          AND:      RON HARMER

 

                                      Fifth Respondent

 

          AND:      CUT PRICE DELI PTY. LIMITED

 

                                      Cross Claimant

 

          AND:      PETER JOHN TOMLINSON and

                   JEAN TOMLINSON

 

                                      Cross Respondents

 

 

 

 

                      MINUTES OF ORDERS

 

 

 

JUDGE MAKING ORDER:          Drummond J

DATES OF ORDER:              12 July, 1995 and

                             18 August, 1995

WHERE MADE:                  Brisbane

 

 

 

THE COURT ORDERS THAT:

 

 

1.        There be judgment for the applicants against the first respondent for $102,108.

2.        There be judgment for the applicants against the second respondent for $248,175.

 

3.        There be judgment for the applicants against the fourth respondent for $248,175.

 

4.        The proceedings against the third and fifth respondents be dismissed.

 

5.        The first, second and fourth respondents each pay five-sixths of the applicants' costs of the proceedings.

 

6.        The applicants pay the third respondent's costs of defending the proceedings.

 

7.        The applicants pay the first respondent's costs of its cross-claim.

 

 

 

 

 

NOTE:     Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA)    No. QG 72 of 1991

QUEENSLAND DISTRICT REGISTRY      )

GENERAL DIVISION                  )

 

 

          BETWEEN:  PETER JOHN TOMLINSON and

                   JEAN TOMLINSON

 

                                      Applicants

 

          AND:      CUT PRICE DELI PTY. LIMITED

 

                                      First Respondent

 

          AND:      ENZO SGAMBELLONE

 

                                      Second Respondent

 

          AND:      HARRY MALOVANY

 

                                      Third Respondent

 

          AND:      PETER HOEFLER

 

                                      Fourth Respondent

 

          AND:      RON HARMER

 

                                      Fifth Respondent

 

          AND:      CUT PRICE DELI PTY. LIMITED

 

                                      Cross Claimant

 

          AND:      PETER JOHN TOMLINSON and

                   JEAN TOMLINSON

 

                                      Cross Respondents

 

 

 

Coram:    Drummond J

Dates:    12 July, 1995 and 18 August, 1995

Place:    Brisbane

 

 

 

                    REASONS FOR JUDGMENT

 

 

          Mr. and Mrs. Tomlinson, the purchasers of a franchise to run a delicatessen in a shopping centre at Capalaba, seek damages from the vendor, Cut Price Deli Pty. Limited ("CPD").  The applicants allege that a number of
representations were made to them during the negotiations that culminated in their purchase of the franchise, which were misleading and deceptive and which induced them to buy the franchise, a decision which they say has caused them the loss of their entire investment and other losses.

 

          CPD's business, in large part, consists of selling to purchasers franchises to operate delicatessens set up by CPD in shopping centres.  The company's Chief Executive Officer, Mr. Sgambellone, said that over a 20 year period, CPD has sold about 300 shop franchises.  While CPD operates delicatessens itself, this is very much incidental to its main activity as a franchisor.  Most of these company-operated stores are eventually sold off as franchised businesses.  As a general rule, while delicatessens are under CPD company management, they make a loss.  Mr. Malovany, the CPD National General Manager of Franchised Development, who is concerned with franchise sales, said:  "Company shops always make losses, in the vicinity of something up to about $1,000 a week."  Mr. Croker, the National Operations Manager of CPD since 1987, said that "there were 23 company shops in 1990 and those shops at that time were anticipated to run at a loss of approximately $800,000 to $1,000,000 per annum and such losses could not be supported out of the general revenues of CPD without substantial supplier assistance".  Mr. Hoefler, Queensland State Manager for CPD in 1989-1990 and then, for a time, State Manager, Victoria, said that some who buy company stores do well, others do not.  What purchasers of CPD franchises are thus buying is the chance that they will do better than CPD.

 

CREDIBILITY

 

          A large number of witnesses were called on both sides.  I do not regard Mr. Tomlinson as a witness whose evidence on important matters can, as a general rule, be accepted, unless it is supported by other evidence.  Tomlinson's evidence about valuing the equipment in the shop is one of the more important episodes that have left me with little confidence in his reliability as a witness.  It is obvious from the contents of the solicitor's diary note of 12 December, 1990 that the discussion in question related solely to the equipment in the Capalaba store; Tomlinson's attempts to suggest that it related to the Cleveland store, and could not have related to Capalaba because of the obviously incorrect date on the note, do nothing to persuade me of his general credibility.  I am also satisfied that Tomlinson swore a false affidavit to obtain a forensic advantage for himself.  This case was due to come to trial on 2 February, 1993.  The trial went off because of the applicants' unpreparedness, in circumstances covered in the judgment I then gave.  But if the trial had then proceeded, Tomlinson would have been called upon to explain why there was no affidavit by his wife, who was present at a number of the important meetings with Sgambellone and Malovany.  He swore an affidavit on 2 February, 1993 that gave a false reason for her absence.  He aggravated his conduct by seeking to explain the matter away as a typing or dictation error.

 

          Mrs. Tomlinson has, I think, limited recall of discussions with CPD officers at which she was present.  Mr. Clifton and Mrs. Perrson I regard as important and reliable witnesses.

 

          Save where they gave evidence against CPD's interests, I am reluctant to accept the evidence of most of the witnesses from the CPD organisation unless it is supported by contemporaneous documents or other confirmatory evidence.  Sgambellone and Malovany gave evidence in their affidavits of the most extraordinarily detailed conversations with Tomlinson.  Neither taped or made detailed notes of these discussions.  It is difficult to accept that either could have anything like a recollection of the kind set out in their affidavits.  The picture presented by each is of the most complete disclosure of all possibly relevant information.  The extreme care taken by Sgambellone to make the disclosures he claims he made to Tomlinson is in sharp contrast with how he conducted himself, at about the same time he had his discussions with Tomlinson, when trying to persuade Perrson to buy the Capalaba store.  Malovany's attempt to resile from the admissions he made to the effect that the Capalaba store's performance provided no support for Hoefler's use of a $16,000 turnover figure and a 38% gross profit does nothing to enhance his reliability.

          Much time was spent at the trial on examining the circumstances in which CPD entered into the lease from Australian Guarantee Corporation Limited ("AGC") of the equipment in the store, an episode said to be relevant to a number of issues in the action.  By July 1990, CPD had paid out $430,000 to Mr. Lee, the previous Capalaba franchisee, in settlement of the action he brought against it; CPD incurred a further $480,000 for its own legal costs of that action.  As Malovany said, CPD needed funds to pay Lee.  CPD, according to its finance broker, Mr. James, then had something under $200,000 that remained available to it under a line of credit with AGC.  CPD made an arrangement with Gold Coast Refrigeration ("GCR"), a company with which it had long had an association as the company involved in fitting out its stores, that was entered into with the knowledge of Sgambellone and Malovany, on CPD's side, and of Mr. Holzapfel, on GCR's side, to enable CPD to get access to the AGC funds.  So far as the documents that were prepared are concerned, this arrangement between CPD and GCR was structured as an ordinary finance lease transaction, i.e., a sale by GCR of property it owned - the equipment in the Capalaba store - to AGC at a price of $152,700 agreed between GCR, as the supplier, and CPD, as the acquirer of the goods, and a lease of those goods by AGC to CPD.  That structure set out in the documents was a sham.  CPD had obtained title to all this equipment under the settlement of the Lee action.  It was CPD, not GCR, who owned the equipment at all relevant times.  GCR had nothing to sell to AGC, contrary to what its invoice to AGC stated.  Holzapfel ensured his company passed the $152,700 it got from AGC, to which it had no entitlement, back to CPD (less $14,000 or so which GCR retained as payment for work done for CPD entirely on another account).  I make no finding whether AGC was aware of this subterfuge.  The evidence does not enable a conclusion to be reached on that matter, although there is hearsay evidence that a subordinate officer of AGC was aware of what went on.  But each of the CPD and GCR officers involved was, to his knowledge, engaged in making a sham arrangement, whether or not AGC was ignorant of what took place.  I am satisfied that the transaction was set up by CPD as a sham for its own commercial advantage, i.e., to ensure that it would be able to get access to the bulk of the funds AGC was holding available to it which CPD probably would not have been able to access, even if AGC were prepared to enter into a financing transaction based upon the true position, viz., CPD's ownership of the equipment, by way of sale by CPD and lease back to it by AGC.  In the absence of evidence explaining AGC's role in the matter and the depreciation history of the equipment, it is not possible to make precise findings, but I infer that the reason why this transaction was structured as it was is probably to be found in the regime reflected in s. 60(2) the Income Tax Assessment Act 1936 (Cth) and Income Tax Ruling 2354, which regulate the extent to which a lessor can obtain a deduction for depreciation of leased equipment against lease rentals and thus the commercial viability of particular lease transactions.  The credit of Sgambellone and
Malovany are damaged by their willingness to participate in such an arrangement.

 

          It was submitted that Tomlinson was the victim of what was called a "bait and switch" operation.  I do not accept that.  Sgambellone was very keen to find a purchaser for Capalaba to get it off CPD's own books as a loss making enterprise and to recoup some of the other losses CPD had incurred in the litigation with the previous franchisee, Lee.  Sgambellone was an aggressive salesman and was to an extent reckless in the opinions he expressed about the business' trading capacity; he made some statements in the course of his discussions with Tomlinson which he could not have believed to be true.  But I do not think the whole exercise of selling the business to Tomlinson was engaged in as a deliberate exercise in deception from the outset.

 

          As for the other CPD witnesses, they appear to be intensely loyal to CPD and have, in many instances, I think, allowed that loyalty to colour their evidence to favour CPD's case.  By way of example, Mr. Souness was prepared to fly in the face of his own memorandum of 23 April, 1991 and say that the assessment of the contribution the rotisserie made to turnover set out in it, which he personally made from CPD's own records, came instead from what Tomlinson told him.  Mr. Demnar's use of a diary entry to try to place an important meeting much later than Tomlinson said it took place, to
Tomlinson's disadvantage, was unconvincing.  Ms. McKenzie is an exception.  I regard her as a generally reliable witness.

 

THE APPLICANTS' MAIN CASE

 

          Three related issues formed a major part of the case litigated at the trial.  Firstly, the applicants alleged a representation that under the management of the applicants the shop would trade with a turnover of at least $20,000 per week, whereas it had an average turnover of only about $12,000 per week and was incapable of achieving any better.  The respondents admit only that the fifth respondent told Tomlinson that the shop could trade with such a turnover, a statement said to be justified by the fifth respondent's experience working in the shop during 1990 and his experience in CPD stores generally.  Secondly, the applicants pleaded a representation that the turnover of $20,000 per week would itself increase within a very short time to $25,000 to $30,000 per week, a representation denied by the respondents.  Thirdly, they alleged a representation that under the management of the applicants the shop would trade with gross profits on turnover of between 38% and 42%, something that it is said the shop was not capable of achieving.  The respondents admit that written information given by the first and fourth respondents to the applicants included a statement that 30% to 40% was the range within which gross profits could be expected and a statement that gross profit estimates of 36% and 38% could be expected for the shop, predictions said to be based on trading figures for the Capalaba shop and CPD shops generally.

 

          In his first affidavit, Tomlinson gave detailed evidence in support of these allegations.  He was initially interested in the new store at Cleveland which CPD intended to open.  It was only after it became apparent that CPD might not be able to make this available to him that he said Sgambellone mentioned the existing Capalaba store as one worthy of his consideration.  Hoefler, the Queensland Manager of CPD, had given Tomlinson a written profit estimate for the Capalaba store, along with similar documents for other stores well before that, in early September 1990, when Tomlinson was first looking at the businesses CPD had available.  Tomlinson says that at a meeting held on 14 November, 1990, when he and his associate Clifton were undergoing their CPD training course, Sgambellone first mentioned difficulties with being able to open the Cleveland store and referred to the Capalaba store, saying:

 

          "The Capalaba store is an excellent store.  It's just outside the biggest Coles in Queensland with the biggest turnover in Queensland.  The Coles store there does $600,000.00 a week and the deli there does $60,000.00 a week.  You will take a third of that, that is $20,000.00 a week and you will improve on that to $25,000.00 to $30,000.00 a week."

 

          On this occasion, Sgambellone gave Tomlinson a handwritten note showing the Capalaba store takings for the period between the week ending 28 July, 1990 and the week ending 10 November, 1990 (as well as the takings for another store then under discussion).  This note showed the Capalaba takings averaging a little over $12,500 per week for the first half of this period and then, with the exception of two weeks, substantially exceeding that figure each week, on two occasions exceeding $16,000.  According to what Tomlinson said, Sgambellone gave him a brief history of the Capalaba store, referring to "a Chinaman [i.e., Victor Lee, who] used to own the Capalaba shop and did some terrible things".

 

          Lee was the franchisee of this store from early 1987 to about April 1990.  CPD ran the store itself from then until Tomlinson took it over in December 1990.  Lee is not a witness worthy of much credit:  he kept for his own private use accurate financial information in a "green book" but provided overstated trading figures for the Capalaba store to mislead a financier into making a loan available to him to refinance his existing borrowing arrangements on terms more advantageous to him.  He understated his trading results to his accountant who prepared his tax returns.  When he was trying to sell, he overstated both turnover and net profit in the information he gave a real estate agent to mislead prospective purchasers.  However, I am prepared to accept his evidence that the store traded very badly during the period he ran the business.  This evidence was not challenged by CPD and his own deceptive conduct to which I have referred suggests a man trying to get out of a bad bargain.  I also accept that CPD was aware of Lee's record of loss-making:  Croker recognised handwriting in Lee's green book as that of someone who had worked for CPD.  This tends to confirm what Lee had to say about having given the green book to CPD.

 

          According to Tomlinson's evidence, Sgambellone said that after CPD went to court to get Lee out of the shop, Sgambellone put in a young girl, Karen Detering, as manageress for a time and then an expert CPD manager, Mr. Harmer.  Sgambellone said it was Harmer's expertise that produced the sudden and generally consistent large rise in weekly turnover at Capalaba.  According to Tomlinson, he said:

 

          "This is what happens when you put a good Manager in to run the store.  If you were to take up the store you would have no problems and take $20,000.00 to $25,000.00 a week as a franchisee.  Shop managers don't work as hard as Franchisees ...  When Karen had been running it, it was only doing $12,000.00.  When I brought Ron Harmer up from Sydney, in a very short time he had taken the store to $16,000.00.  From my experience when a Franchisee goes into a shop, the takings go up by $4,000.00 a week.  With a bit of hard work you will make $25,000.00 easily."

 

          He thus equated, in what he told Tomlinson, the results he said Harmer had achieved with what a keen franchisee could expect to achieve.  But neither he nor anyone else on behalf of CPD revealed that this increase in turnover to about $16,000 was only achieved by the aggressive selling tactics of the experienced manager, Harmer, who put on a series of promotions that boosted turnover at the expense of gross profit, although this was well known to various CPD officers who dealt with Tomlinson, including Sgambellone and Malovany.  Nor did anyone reveal to Tomlinson that the Capalaba store consistently operated at a loss even under Harmer's management, as did other stores while under CPD management.  I reject what Sgambellone and Malovany say about having made these disclosures.  Sgambellone did not so much as hint at the fact that company stores, including the Capalaba one, made a loss under CPD management in his discussions with Perrson:  he was concerned throughout to impress on her what a very attractive business opportunity the Capalaba franchise offered.  What CPD described as its "disclosure and explanatory memorandum", which Malovany referred to in support of his claim that he told Tomlinson that company managed stores generally operated at a loss, contains the statement:  "CPD found that once franchised, the results of Company owned shops changed dramatically with improvements in the turnover, gross profit percentages and wages expenditure owing to the efforts and hard work performed by the owner operator".  But it steers well clear of disclosing to prospective franchisees who read it that company owned stores generally run at substantial losses, something which would, if disclosed, be very likely to cause otherwise interested purchasers to reflect upon the wisdom of proceeding.

 

          Tomlinson and Clifton had a discussion at the Capalaba store on 21 November, 1990 with Harmer, who was still managing it for CPD.  According to Tomlinson, he too was very optimistic about its prospects.  He showed Tomlinson a bundle of weekly trading sheets "but not in any detail".  Later that same day, at Sgambellone's request, Tomlinson met Sgambellone in Brisbane.  Sgambellone again spoke very optimistically about the potential of the Capalaba store to turn over $25,000-$30,000 in the right hands.  According to Tomlinson, he also said:

 

          "... at a return of 38% to 42% you will be able to pay back any loan in two years and still have a good living out of the shop.  You'll be able to sell the shop and make a nice profit of $20,000.00 for each $1,000.00 of takings and at the same time nett $2,000.00 per week."

 

          He says Sgambellone told him on 26 November, 1990 in Sydney that the price for Capalaba was $280,000, although he could have it for $275,000:  "and that is cheap because all I want to do is cover my costs in getting Victor Lee out".  Tomlinson says he then agreed on the price of $275,000.  He says he and Clifton returned to the CPD store at Campsie to continue their training and a little while later were telephoned by Sgambellone, in early December 1990, to say he would like them to take over the Capalaba store on 17 December, 1990.  Tomlinson protested at the rush.  Tomlinson says he received three or four further telephone calls from Sgambellone and Malovany pressing him to take over the store on 17 December, 1990.  Sgambellone urged him to take over the business then to get the benefit of the best trading week of the year; he was also offered a franchise-free period of six weeks and a holiday until the end of January 1991 in respect of equipment lease payments.  The State Manager of CPD, McKenzie, telephoned him on 17 December, 1990, while he was
with his solicitor in Brisbane, and said that if the purchase moneys were not lodged with Tomlinson's solicitor by that evening, he would not get the store.  He replied by saying that he was at his solicitor's office to lodge the money then, even though the legal documentation was not ready.  He took over the store that day.  The contracts were not executed until 6 March, 1991.

 

          On the face of things, Tomlinson is powerfully supported by Perrson in what he says he was told by Sgambellone.  In late November 1990, i.e., at about the same time Sgambellone raised with Tomlinson the prospect of his taking over the Capalaba store, Perrson had discussions with Sgambellone about her buying that same franchise.  With Sgambellone's assent, she taped the lengthy conversation she had with him, Malovany and Harmer.  Understandably, her evidence was not challenged, save that Sgambellone and Harmer said the transcript of this tape on some occasions wrongly identified Sgambellone as the speaker when it was Harmer, and visa versa.  This is of no moment, since there is no suggestion that Sgambellone disowned anything that Harmer said.  Sgambellone spoke volubly and optimistically to her about the potential of the Capalaba store to take $25,000 to $30,000 a week.  He told her, in the context of discussing the Capalaba store:

 

          "We have shops in centres in Sydney that are doing $25,000.00 to $30,000.00 per week and they are far worse than Capalaba easily ...  I'll show you Sylvania, I'll show you Bondi and you can't compare
it to Capalaba.  Capalaba is 10 times better than that, and those shops are doing more than $30,000.00 per week ...

 

          The position is unbelievable where we are ...  I am so confident that if we get an operator the same as Sydney with the same attitude, who's aggressive, that store will do more than $25,000.00 per week because the Coles in front of us does $650,000.00 per week.  It's the busiest Coles in Australia.  I haven't got any shop, a Cut Price Deli outside of a Coles doing anywhere near that.  The nearest one I've got is at Bondi in Sydney.  That is doing $400,000.00 per week at Coles and we are doing over $30,000.00 per week.  What you should be doing without exaggeration ... you should be doing close to $15,000.00 to $20,000.00 a week there in Capalaba ...  Nobody has got a better judgment than I have, because we are only as good as the traffic flow we have in front of our shops ...

 

          When you look at Capalaba the number of people that come out of Coles in front of our shop is the busiest traffic I've ever seen anywhere ...

 

          I believe that with that shop, if you work hard enough, I reckon in 12 to 18 months you can make yourself a couple of hundred thousand dollars.  You know a shop like that in Sydney, Ron, correct me if I'm wrong, would sell for over the 400 mark.  Over the $400,000 mark not a problem in the world ...  That is very cheap shop for $270,000."

 

          Sgambellone also told Perrson that he would take $270,000 for the Capalaba store because all he wanted to do was break even and to get back what he had to pay to the previous owner, Lee.  This was untrue.  CPD paid Lee not $270,000 but $430,000; it incurred a further $480,000 in respect of its own legal costs of this litigation.  He said this to Perrson (and later also to Tomlinson) to persuade her to accept that the franchisee was a bargain.  CPD was particularly keen to find someone to buy the franchise for the Capalaba store, no doubt as a source of additional funds to cover these large outlays.

          While Perrson's evidence appears to provide strong support for what Tomlinson has to say about Sgambellone making representations that a turnover of $20,000-$25,000 would be easily achievable, it is striking that nowhere prior to the statement of claim which Tomlinson filed on 23 May, 1991 is there any complaint by him of such a representation.  His complaints, prior to that, were confined to representations that the turnover would be $16,000.  It was also in that pleading that Tomlinson first complained of a representation that the Capalaba shop would trade with gross profits on turnover of between 38% and 42%.  Prior to that, his complaints were that it was misrepresented to him that under his management, the Capalaba store would take "in the vicinity of $16,000 plus each week" and that he could expect to achieve "a 38% gross percentage profit":  see the letter of 6 March, 1991 from his then solicitors to the solicitors for CPD.  The highest weekly turnover figure and highest profit percentage mentioned in the documentation that CPD gave to Tomlinson with respect to the Capalaba store during the negotiations was $16,000 and 38%.  On 6 September, 1990, when Tomlinson inspected a number of CPD stores in Brisbane in the company of Hoefler, Hoefler gave him a sheet headed "Estimated weekly profit and loss statement", for the Capalaba store; this contained four estimates of net profit per week for that store based on a gross profit of 36% and turnovers of $12,000, $14,000 and $16,000 and on a turnover of $16,000 per week with a gross profit of 38%.  This sheet showed that substantial net profits were obtainable.  I do not accept Hoefler's evidence that he read to the Tomlinsons each note and the warning on the second sheet of this document, which he says he also gave to Mr. Tomlinson with the first sheet.  This is a significant strengthening of his already apparently careful and very detailed affidavit evidence.  If he did give the second sheet of notes to Tomlinson with the first sheet of estimates, I think it unlikely that anything was said to impress on Tomlinson the qualifications to the estimates contained in the notes, or that Tomlinson paid any attention to this second sheet.  In the conversation Tomlinson had with Sgambellone on 14 November, 1990, he was given the recent turnover figures achieved by the Capalaba store which, on their face, supported what he says Sgambellone told him about the store taking $16,000 a week.  It appears from the note made by Tomlinson's solicitor, Mr. Tredenick, on 9 January, 1991 that Tomlinson's concerns then focused around what he had been told about the shop taking $16,000 a week.  He expressly sought Tredenick's advice concerning his remedies on the basis that the trading figures he obtained after he took over the shop showed that Capalaba was a $12,000 a week shop not a $16,000 a week shop.  The solicitor's diary note of 9 January, 1991 is full of complaints by Tomlinson about a $16,000 turnover:  there is no mention of any complaint that he was promised a higher turnover of $20,000-$25,000.  Tomlinson, in one of his affidavits, described a meeting in early February with Malovany at the Capalaba store in which he said he told Malovany:  "I had come into the store that they told me was going to take $16,000 per week, but I had not done anywhere near $16,000 per week ..."  He acknowledged that this was the only complaint he then made to Malovany about turnover representations.  Later, in early March 1991, Tomlinson complained to McKenzie, then CPD's administration manager, of not being able to achieve the $16,000 turnover he said Sgambellone led him to believe he would make.  He made no mention to her either of the materially higher turnover representation that later emerged in his pleading.

 

          The applicant took over the store on 17 December, 1990 and it is clear that he very quickly became disenchanted with it.  By 9 January, 1991 Tomlinson was seeking his solicitor's advice as to the availability of misrepresentation proceedings.  In his first affidavit, he said he had takings of $17,000 in the first week[Tom, i.e., the Christmas week, when he expected to do about $26,000 that week.  But while he found his very first week's trading disappointing, I do not think it was this that caused him to become disenchanted so quickly with the store.  That was, I think, caused by his receipt, shortly before 9 January, 1991 of the actual trading figures for the Capalaba store for 1990 which he got from CPD, after pressing Sgambellone for them for some time.  Tomlinson was aware of the existence of weekly trading sheets for the Capalaba store:  Harmer had showed him some of these sheets on 21 November, 1990.  I do not think, however, that Tomlinson realised, as a result of the limited opportunity he then had to peruse them, what these quite complex sheets revealed.  Tomlinson said, in cross-examination, that prior to paying over the purchase moneys on 17 December, 1990, he asked Sgambellone a number of times for the weekly trading sheets, but did not get them, Sgambellone fobbing him off with various excuses.  He says they were important to him, that he would have liked to have had them before he parted with his money.  I am inclined to accept his evidence on this point and reject the evidence of the respondents' witnesses that prior to 17 December, 1990, Tomlinson was given full access to the weekly trading figures.  It is clear from his solicitor's diary note of 17 December, 1990 that Tomlinson had some concerns on that day about whether he could rely on what he was told about the store's good prospects:  this suggests that he did not then have the actual and dismal trading history for the store.  In oral evidence he said he saw Sgambellone and Demnar in early January 1991 and pressed Sgambellone again for the trading figures.  This was his only meeting with Demnar at the store.  All he says he got on this occasion was a note of gross profit percentages achieved at Capalaba prior to 17 December, 1990, which Demnar then obtained by telephone.  This note, identified by Demnar, is in evidence.  Clifton confirmed that there was such a meeting at about this time, i.e., early in the New Year.  Sgambellone acknowledged in his affidavit that he had one meeting with Demnar and Tomlinson at the store, although he puts it later in January.  He did not mention what then occurred, given that Tomlinson had nothing to say in his own affidavits about this meeting.  In cross-examination Sgambellone denied there was any discussion about the weekly trading sheets.  Demnar describes a meeting with Sgambellone and Tomlinson very like the early January meeting described by Tomlinson, although he places it in March 1991; his evidence, which he bases on his diary note of 11 March, 1991 that this meeting took place on that day, is unconvincing.  The diary note, with its one-word reference to Capalaba in the context of references to numbers of chickens, provides no support for his suggestion that it recorded this meeting at Capalaba.  His file report for that week in March, which he mentioned for the first time in evidence as another document upon which he had also relied to fix this as the date of the one meeting he ever attended at Capalaba with Sgambellone while the applicants ran the store, appears from his own evidence to be an ordinary company document which was placed on a company file; he cannot, however, find it.  It is much more likely that the one meeting he attended at Capalaba with Sgambellone and Tomlinson took place on 3 January, 1991 and that it is that meeting to which his diary entry for that date refers.  I consider that it was soon afterwards, but prior to 9 January, 1991, that Tomlinson received the weekly trading figures.  These records had a profound impact on him.  As Tomlinson then read the figures, they showed that notwithstanding the turnover it achieved under Harmer's experienced supervision of up to $16,000, it always ran at a loss and that this remained the position even if the manager's wages allocated to Harmer were ignored.

 

          Tomlinson quickly became dissatisfied with Tredenick and retained Mr. Fong as his solicitor:  he says he did this at the end of February.  He also says that he first told Fong about promises of a $20,000 and $25,000 rising to $30,000 a week turnover "a few days after that", in circumstances in which he wanted Fong to write a letter to CPD complaining about his situation.  I do not accept that he then made any complaint to Fong about a misrepresentation concerning turnover in any amount in excess of about $16,000.  Fong's letter of 6 March, 1991, the first written complaint made by or on behalf of Tomlinson, is limited as I have said to a representation as to a "$16,000 plus" turnover.

 

          Perrson is understandably uncertain about just when it was that she gave Tomlinson the tape of her conversation with Sgambellone, but her evidence suggests clearly enough that Tomlinson received the tape from her well prior to the filing of his statement of claim.  The applicant's failure to provide any evidence from his solicitor's file as to when he first received the tape, despite my invitation in the course of the hearing to do that, further confirms me in this view.  I reject Tomlinson's evidence that he only received the tape after he had filed his pleading in which he made, for the first time, allegations of representations that the turnover would be $20,000-$25,000 a week with gross profit on turnover in the range 38.  I find that Tomlinson became aware of Perrson's tape only after Fong wrote the letter of complaint of 6 March, 1991, but prior to 23 May, 1991, when his statement of claim was filed.

 

          I am inclined to the view, given Tomlinson's insistence only on a representation of "$16,000 plus" per week in his numerous complaints made prior to filing his statement of claim, that, up to the time he got Perrson's tape, he was concerned only about having been wrongly assured of a turnover of "$16,000 plus" per week.  It may very well be that, just as Sgambellone spoke optimistically to Perrson in November about $20,000 to $25,000 (and more) as an achievable weekly turnover, he spoke in similar vein to Tomlinson, in the negotiations that took place in November and December concerning the Capalaba store.  Clifton said Sgambellone spoke in this fashion.  But I do not accept that Tomlinson placed any great weight on such oral statements.  What I think he relied upon in committing himself to the venture was the oral information he was given by Sgambellone and Harmer, that supported the written information he was initially given by Hoefler, that he could expect a turnover of $16,000 per week and a gross profit of 38%, and thus the likelihood of a substantial net income, from the Capalaba store.

 

          In view of the bases upon which I have reached this conclusion, it follows that each of the second, fourth and fifth respondents were knowingly concerned in this conduct engaged in by the first respondent so that, if it amounted to a contravention of s. 52 the Trade Practices Act 1974 (Cth) ("the TPA") which caused the applicants' loss, these three respondents would be liable with the first respondent for any such loss.  At the start of the trial, however, the applicants stated that they would not seek to proceed against the fifth respondent who was bankrupt.

 

          Harmer had CPD authority to make the statements he did concerning the Capalaba business:  Sgambellone said that shortly before Tomlinson met Harmer at the Capalaba store, Sgambellone told Tomlinson to speak to the managers of the Brisbane shops, including Capalaba that he was then interested in, about the financial operations of the stores and "to feel free to ask the managers as many questions as you want to satisfy yourself".  Sgambellone also says that just before Tomlinson inspected the Capalaba store, he in effect repeated what he had told Tomlinson in this regard by instructing Harmer to show Tomlinson what he wanted to see and to "be helpful with anything he [i.e., Tomlinson] wanted to ask".  Much of what he told Tomlinson was a repetition of what he and Sgambellone had a little while before told Perrson.  Malovany had no doubt as to Harmer's authority in this regard.  Hoefler's authority to give the estimate sheet to Tomlinson was not disputed:  the inference that he had that authority is clear.

 

          That what was important to Tomlinson, so far as his expectations about turnover were concerned until receipt of Perrson's tape, were the assurances of a turnover of $16,000 a week is further confirmed by the evidence concerning his dealings with Sgambellone when he was interested in taking over the Cleveland store, prior to becoming interested in Capalaba.  He says that Sgambellone orally represented the likely turnover of the new Cleveland store as being $18,000 to start with, rising to $20,000 to $25,000, i.e., he made representations very similar to those which are now reflected in his statement of claim in relation to the Capalaba store.  Just as Tomlinson was given by Hoefler an estimated weekly profit and loss statement for Capalaba based upon takings of $16,000 per week as a maximum, so he was given a similar statement by Hoefler for Cleveland, based on a maximum weekly turnover of $18,000.  If Tomlinson was assured, as he claims, by Sgambellone of a turnover of "easily $20,000.00 to $25,000.00 per week" at Cleveland, he ignored those assurances when he put in his application for finance to assist in purchasing the Cleveland store.  He based that application not on what he says Sgambellone told him, but rather on the maximum of $18,000 per week in Hoefler's written statement.  I infer that notwithstanding what Sgambellone may have told him about both Cleveland and Capalaba having high potential turnovers, Tomlinson was much more impressed by what he was given in writing relating to the turnovers for each of those stores than what he was told by Sgambellone in his no doubt voluble and enthusiastic comments about their potentials.  I think it was only when he became aware of the cogency of the material Perrson had in the form of her tape that he decided to abandon his complaint that he was assured of a $16,000 weekly turnover and to run instead a case based on assurances of significantly greater turnover of the kind Sgambellone had made to him and repeated to Perrson.  His reasons for this do not matter much.  But they may have stemmed from a belief that he would be on stronger ground in proving that the more optimistic predictions were unfounded:  he may have had some concern at whether he would be able to prove that the representations of a $16,000 turnover were unjustified, in view of the figures he believed Harmer had already achieved at Capalaba.

 

          The applicants specifically alleged in their pleading detrimental reliance only upon a representation that a turnover of at least $20,000 per week would be achieved; they did not plead any representation as to a $16,000 turnover.  They amended their statement of claim a number of times.  It was only after the close of both parties' cases that counsel for the applicants sought leave to amend the statement of claim to raise as an issue that it was represented to the applicants that the shop was trading with a turnover of $16,000 per week.  In a ruling I then gave I refused leave to make this amendment.  It is not open to the applicants to seek in closing submissions, as they did, an entitlement to a finding that they acted in reliance upon a representation that the weekly turnover would be $16,000.

 

          The true position, I think, is that, in deciding to buy the franchise, the applicants relied on representations that they could expect to trade with a weekly turnover of $16,000 and a gross profit of 38% (which would be likely to
give them a substantial income from the business after their expenses).

 

          I consider that the documentation Tomlinson got from Hoefler contained a representation that a gross profit of the order of 38% was achievable on a turnover of the order of $16,000, which was itself also achievable.  Sgambellone and Harmer both said that Tomlinson should make a 38% gross profit on a $20,000 plus turnover.  While Clifton gives clear evidence that both Sgambellone and Harmer said a gross profit of 38% could be anticipated, he does not suggest anything more than 38% was ever mentioned by those associated with CPD as an achievable gross profit figure.  Given the written information Tomlinson had received from Hoefler, I think that their references to this same gross profit figure were likely to have reinforced his belief that he could anticipate such a gross profit level, as a realistic one for this business.

 

          Although it is not now open to the applicants to seek judgment based on their reliance upon representations of a turnover of $16,000, there is no reason why they cannot obtain judgment based on their reliance upon the representation as to 38% gross profit being achievable, which is encompassed in the allegation as to gross profit that is pleaded.  If the applicants bought a worthless business, their reliance on achieving a 38% gross profit was as much a cause of their doing that as was their reliance on achieving a $16,000 turnover.  It was the combination of both representations that created for the applicants the picture of a profitable business.

 

          It remains to consider whether what Tomlinson was told about a 38% gross profit being achievable on a $16,000 turnover was misleading.  In my opinion, it was misleading for Tomlinson to be told that he could anticipate a 38% gross profit figure at Capalaba.  What he was told involved a prediction.  There was no reasonable ground for making it.  Hoefler's evidence that he got the information, which included the 38% gross profit figure for the Capalaba store and which he gave in written form to Tomlinson, from the store's records cannot be correct:  he says this material was "based on assumed trading income and actual trading expenses at the Capalaba shop".  There is no justification in the records for Capalaba for believing that a gross profit of anything like 38% of an assumed $16,000 turnover could be achieved.  Two of the four separate weeks in each of which CPD did get a 38% or better gross profit in the 35 week period it ran the store in 1990 are followed by weeks with very low gross profits, 24% and 26.5%, suggesting that the 38% figure was artificially high because, e.g., payment for goods sold in the week of high apparent gross profit was deferred until the next week.  It achieved nothing like a 38% gross profit under CPD management in 1990:  even under the expert management of Harmer in the period 17 September to 1 December, 1990, it could only achieve an average gross profit of 34.2 %.  This gross profit is inflated by the special suppliers' discounts available to CPD but not to franchisees.  CPD can get no support from their general experience that company-managed stores achieved poorer trading results than franchisee-operated stores.  That is said by its witnesses to be due to the fact that franchisees generally put more effort into running stores than do paid company managers.  But Harmer was no average manager.  He was experienced and expert at it.  That is the very reason he was brought into Capalaba, to boost trading results and, in particular, turnover.  Sgambellone himself, as I have said, equated Harmer to an effective franchisee-operator.  Moreover, the Capalaba store had a very poor trading record.  This was the position during its initial period of operation under CPD management in 1986, as appears from CPD's letter of 15 May, 1986 to a prospective franchisee, Mr. Shambeler.  It traded badly while Lee was franchisee from 1987 to early 1990 and when CPD again ran it in 1990.

 

          In some CPD stores the 38% figure was achieved.  But that is a poor guide to what might reasonably be expected from a different store.  Stores are not uniform elements; each has its own characteristics that affect its trading capacity.  The location of the particular store, whether it is close to shops that attract a high flow of shoppers or close to competing delicatessens, affect the particular store's trading capacity, including the gross profit figures obtainable; whether the particular franchisee is an especially efficient operator is another.  This is confirmed by Sgambellone and various other CPD officers who gave evidence, including Hoefler; he gave as one reason for adopting a 38% gross profit in the material he handed Tomlinson that that was what could have been achieved by "a very very good operator, well situated in a shop, managing and controlling his business very well"; he also described a top operator as "one that had been there a number of years or ones that were very, very astute to retail".  CPD's own disclosure statement refers to the fact that gross profits achieved by the entire body of its franchisees fall within a wide range:  from 30% to 40%.  That cannot of itself justify the confident statements made to Tomlinson to the effect that Capalaba was capable of achieving gross profit level at the highest end of this range.  The information from CPD's own gross profit register also shows a wide variation between the 20 CPD stores in the Brisbane-Ipswich area in the relevant period:  while three of these 20 stores achieved gross profits of 38%, or better, in both May-July 1990 and November 1990-January 1991 (which includes the busy Christmas period), none of the other 17 stores achieved that figure in either period.  While seven of these 17 stores achieved gross profits of 36% to 38% in the busy Christmas period, five had substantially lower gross profits in the earlier period.  (Two - Wynnum Plaza and Stones Corner - actually had higher gross profits in the earlier period.)  No criticism could have been made of CPD if it had simply made this sort of information available to Tomlinson to make what he chose of it.  But without an analysis identifying the factors enabling a few stores in the Brisbane area to maintain the very high gross profit figure of 38% or better (and more was done by CPD) and without there being some grounds for thinking that those same factors were applicable to Capalaba, evidence that three out of 20 Brisbane-area stores could maintain a 38% plus figure provides insufficient reason of itself for predicting that the Capalaba store could do the same.  I accept what Malovany said about the gross profit information provided by Hoefler:

 

          "Q   ... based on the record of this store, there was no basis for the use of the 38% figure?

 

          A    That would be correct.

 

          Q    Nor for the 36% figure?

 

          A    That - it may have achieved that on a number of occasions but not on an overall situation."

 

          I should also say that, notwithstanding what McKenzie said about Sgambellone's usual practice in calling for the CPD gross profit register when he interviewed prospective franchisees, I prefer Tomlinson's evidence to Sgambellone's and accept that he was not given access to this information:  Perrson's tape does not record any mention of gross profit or the register and it was not suggested to her that she was given opportunity to inspect this document.

 

          Towards the end of October 1990 Tomlinson did read the CPD disclosure statement and completed the personal information sheet.  During the course of his training at the CPD Campsie store, he also completed a lengthy questionnaire.  Included in this material are written acknowledgments by Tomlinson that CPD cannot guarantee the profitability, turnover or gross profit results which a franchisee will achieve.  None of this, however, requires a conclusion that Tomlinson did not in fact rely on what he was told about the Capalaba store having the capacity to achieve a turnover of $16,000 per week and a gross profit of 38%.  Tomlinson's acknowledgments related to matters generally; he was given apparently precise information with respect to the turnover and gross profit obtainable at Capalaba in the context of being told by Sgambellone, the Chief Executive Officer of CPD, and Harmer, the manager of that store, what a desirable business it was.  This information concerning Capalaba was likely to weigh much more heavily with him than general information.  Moreover, there is nothing inconsistent with his appreciating that the assessments of turnover and gross profit he was given with respect to Capalaba itself were not guaranteed, while at the same time believing what he was told about a $16,000 turnover and a 38% gross profit being realistic estimates of what was likely to be achievable.  What he was told in these respects fall far short of reasonable estimates.

 

OTHER MISREPRESENTATIONS ALLEGED

 

(1)       The missing rotisserie

 

          The applicants also alleged a representation that the applicants would receive the equipment contained in shop
64 as inspected by them, something that did not happen.  This is denied by the respondents.

 

          Much time was spent at trial on a chicken rotisserie, which Tomlinson saw in the Capalaba shop prior to taking it over, but which CPD removed before that.  I accept that CPD removed it because its officers, including Sgambellone, believed that it did not generate sufficient returns for the Capalaba business to justify its operating costs and that CPD had replaced it with other equipment, at a cost of $8,422, that was thought to be of more use to the business.  Sgambellone claims he told Tomlinson and Clifton of the decision to remove the rotisserie and replace it with other equipment in November 1990.  I do not accept this.  I prefer the evidence of Tomlinson, confirmed by Clifton, here.  Nor do I accept Malovany's evidence that he discussed the removal of the rotisserie with Tomlinson on 4 December, 1990.  Tomlinson's complaint to McKenzie on 14 December, 1990 is inconsistent with his having prior knowledge of its removal.  I am prepared to find that, by allowing Tomlinson to see the store set up with certain equipment, including the rotisserie, prior to his acquiring the franchise, CPD made the representation here alleged.  I also think that, when he almost immediately after taking over the business became concerned when the turnover was below what he had anticipated, he began to believe that the absence of the rotisserie was one of the causes of the business' dismal performance.  He
promptly began to complain to Ms. Kelly and other CPD officers about its absence.

 

          But the applicants have to prove that they went ahead with their acquisition of the business in reliance on this representation.  On Friday, 14 December, 1990, immediately before Tomlinson took over the store the following Monday, while on a visit to the store with McKenzie, she said he noticed the rotisserie was missing and complained to her about that.  Yet he went ahead on 17 December, 1990 and paid the franchise moneys to CPD.  Tomlinson said he was pressured by CPD people into taking over the business on 17 December, 1990.  I have already referred to the incentives he said Sgambellone and Malovany offered him to persuade him to start on 17 December, 1990 at Capalaba.  He gives no other evidence of "pressure" by CPD officers prior to 14 December, 1990.  The only evidence that he was pressured between 14 and 17 December, 1990 into paying over the purchase moneys, as distinct from taking over the shop, was that McKenzie telephoned him that day to say he would not get the franchise if he did not then pay the money to CPD.  But it is apparent that, prior to McKenzie telephoning him on 17 December, 1990, he had already decided to pay over those moneys:  he says he took the call at his solicitor's office where he had gone to put the solicitor in funds to pay the purchase moneys.  He told McKenzie as much and made no reference to the absence of the rotisserie.  If he truly regarded having the rotisserie as of importance to him, it is difficult to understand how he would have been prepared to part with his money on 17 December, 1990  without at least asking that it be put back in the store.  Tomlinson is a mature man with some years of small business experience; he knew on the previous Friday it had gone.  The various incentives he was offered to take over the store on the Monday are likely to have played some part in causing him to do just that, notwithstanding the missing rotisserie.  McKenzie also said that, even though the rotisserie had been removed, other equipment had been installed and, at the time Tomlinson saw it on Friday, 14 December, 1990, the appearance of the shop and its equipment was good.  Tomlinson probably accepted that, even though the rotisserie had been removed, he was getting a fully equipped shop in good running order.

 

          His parting with the balance purchase moneys on 17 December, 1990 is inconsistent in my view with the presence of the rotisserie then being a matter of importance to him.

 

(2)       The value of the equipment

 

          The applicants also alleged a representation that the equipment installed in the shop was worth $155,000 and had only recently, i.e., as at December 1990, been installed whereas the equipment was worth substantially less than that and was in fact many years old.  The respondents deny this representation, but admit in their defence that a lease of the equipment installed in the shop was assigned to the applicants in which the price of the leased goods was stated to be $152,700.

 

          Despite this "admission" it is clear that, under the franchise agreements, the applicants were not entitled to any such assignment and that no assignment was ever made.  All the applicants were entitled to was the uninterrupted use of the equipment referred to in the warranty in the letter of acknowledgment of 6 March, 1991.  The applicants' obligations with respect to the equipment was limited to reimbursing CPD for the payments made under the lease of the equipment to CPD.

 

          The first statement of claim was filed with the originating application on 23 May, 1991; it was not until just before a further amended statement of claim was filed in November 1992 that the applicants alleged a representation by the respondents as to the worth of the equipment installed in the shop.  In Tomlinson's affidavit filed on 13 August, 1991, he mentioned the equipment only briefly, saying that, on taking over the store on 17 December, 1990 for the price of $275,000, he paid $120,000 to CPD and took over the leasing payments on the equipment "which was leased at $155,000.00".  It was not until his affidavit filed on 22 October, 1992 that he alleged a representation concerning the value of this equipment, then saying that he relied on certain representations made by the second and third respondents, which included a representation that the shop had been "outfitted with equipment worth $155,000 which had been leased with AGC" and that, had he known that the equipment did not have that value and was worth only what Mr. Timms in his affidavit of 30 September, 1992 said it was worth (viz., $53,240, when new, in 1985) and if he had known that the equipment was approximately five years old, the applicants would not have purchased the franchise.  This equipment, together with other equipment bought by Timms' company for about $15,000 in 1985, was initially installed in a CPD delicatessen at Nerang run for a time by Timms' company.  It was later transferred to the Capalaba store.  In the course of the hearing, the respondents made an admission that the bulk of the equipment in the store when the applicants took it over had been there since 1985.  It is unlikely to have appreciated in value by well over 200% of its new price as it aged over five years.  I reject Holzapfel's evidence that in July 1990, i.e., shortly before the applicants bought the Capalaba store franchise, the equipment had a value, on a going concern basis, of $152,700.  Holzapfel put that figure on the equipment in the invoice which he prepared for AGC to assist CPD to get access then to the funds from AGC.  He made no attempt at that time to value any of the equipment.  I accept the evidence of Mr. Bechard, supported as it is by that of Timms, that the equipment valued on a going concern basis, was worth only about $40,000 in December 1990.

 

          Tomlinson acknowledged in cross-examination that he understood that the price of $275,000 for the Capalaba franchise would not vary, whatever value was placed on the equipment.  He in fact paid $120,000 in cash, the rest of the purchase price of $155,000 being treated as represented by the leased equipment, with the applicants assuming responsibility to reimburse CPD in respect of CPD's payments of the lease rentals.  The conduct of the second and third respondents in fixing the price at $275,000 involved an assertion that the equipment would be treated by CPD as worth $155,000.  But, assuming it also amounted to a representation as to the actual worth of the equipment, it is difficult to accept that it mattered to Tomlinson what the true worth of the equipment was when he decided to buy the franchise.  He had only about $120,000 available to him in cash.  If CPD insisted on treating it as worth substantially less than $155,000, he would not have been in a position to raise the necessary cash component of the price to acquire the franchise that he wanted.  What I think mattered to him was not the true value of the equipment but what CPD was prepared to treat it as worth, for the purpose of calculating the cash amount he had to find.  His later assertion that he would never have entered into the transaction if he had known that the true worth of the equipment was much less than $155,000 cannot be accepted.  Tomlinson never acquired any entitlement to the equipment:  he had no right to and did not take an assignment of the equipment lease from CPD; he said nothing to suggest he had an expectation of obtaining title to the equipment by buying it from the lessor at the end of the lease term.  All he got with respect to the equipment was the warranty by CPD that it would be left in the shop during the period he was franchisee.  He paid, according to the contract, a cash price of $120,000 only, i.e., he paid nothing for the equipment.  He never had to find $155,000 for the equipment:  all he had to do was meet the monthly lease rentals of $3,689.  And the franchise agreements imposed no obligations on CPD to acquire the equipment from the lessor on termination of the equipment lease and give no right to CPD to recover from Tomlinson anything that CPD might have to pay the lessor in respect of the shortfall between the lease residual figure and what the lessor might recoup by sale of the equipment at end of lease.  This conclusion is supported by the fact that he deliberately decided against having the equipment valued prior to committing himself to the agreement.  He told his then solicitor, Tredenick, on 12 December, 1990 that he did not want to have a valuation of the equipment made because if he did that "and the value is less than that being paid, the total amount payable will not vary as the amount payable for the goodwill will be increased on the same amount".

 

          I find that it was a matter of no moment to him that the true worth of the equipment may have been substantially less than the $155,000 which CPD was prepared to allot to it to leave him with the task of only having to find $120,000 in cash to meet CPD's price.  He had seen the equipment in the store and would have been able to assess for himself that it looked in reasonable condition, as McKenzie said was the case.  That was, I think, the limits of any concern he may have had about the equipment on 17 December, 1990.

(3)       The business was operating profitably

 

          A representation that the Capalaba shop was operating at a profit and that the applicants would make a net profit of at least $2,000 per week, something that has not been obtainable by the applicants, was also pleaded.  The respondents admit only that the fifth respondent told the first applicant that if their business reached a turnover of $20,000 per week, the applicants would receive about $2,000 per week net of certain expenses.  The applicants' case here is that the fifth respondent, Harmer, made the representation pleaded during the visit by Tomlinson and Clifton to the Capalaba shop on 21 November, 1990.  They did not seek to rely here on the estimate sheet given them by Hoefler that suggested that, on a turnover of $16,000 and a gross profit of 38%, they could anticipate a weekly profit of nearly $2,000.  Tomlinson said that Harmer told him that "last week the shop netted $2,000" and, later in the conversation, twice referred to that figure as the net profit which Tomlinson could expect from the business.  Harmer denied any mention of the store having made a net profit of $2,000 per week and he said that he expressed the opinion on this occasion that Tomlinson might achieve about $20,000 a week and that as long as he had gross profit, kept his wages down and watched the buying and selling of stock at the right prices, he could probably take home somewhere around $2,000 a week on that turnover; he added that it would not happen overnight and would take a lot of hard work to build the turnover up to $20,000.

          Clifton did not corroborate Tomlinson's evidence of being told that the shop had netted $2,000 in the previous week and, in cross-examination, he expanded on what he said in his affidavit in a way that confirmed almost completely Harmer's evidence here.  I also note that while Tomlinson (but not his wife) said Sgambellone mentioned a $2,000 per week net profit in early discussions about the proposed Cleveland store, Sgambellone, in his taped conversation with Perrson, did not touch on the net profit Perrson could expect if she purchased the Capalaba franchise.  There is no support for Tomlinson on this issue in her evidence either.

 

          Accordingly, I am not prepared to find that the representation alleged was made.  Instead, I find that Harmer told Tomlinson that if he could get the turnover up to $20,000 a week, something that would not happen overnight and which would take a lot of hard work, then he could expect a net profit of $2,000 a week.  I have explained why I do not think Tomlinson relied upon statements made to him by various people associated with CPD that he could expect a weekly turnover of $20,000.  What Harmer said on this occasion about turnover and the profit dependent on provides no foundation for a finding in favour of the applicants, even if what Harmer said about that was misleading.

(4)       Expenditure to be made by CPD on advertising

 

          A representation, denied by the respondents, and not fulfilled by CPD, that upon the sale of the Capalaba shop to the applicants, the first respondent would expend $10,000 on advertising and promoting it, was also alleged.  While the applicants did not abandon this allegation, they did not press it.  I accept Hoefler's evidence that, on 6 September, 1990, during the inspection of the site of the store to be opened at Cleveland, he told Tomlinson that $10,000 would be spent on promoting newly opened stores, in preference to Tomlinson's evidence that this sum was spent on advertising "when a Franchisee takes over a shop", i.e., an already existing, as opposed to a newly opened, business.  Hoefler's evidence here was confirmed by that of Mrs. Tomlinson.  I find that no such representation as is alleged by the applicants was ever made.

 

(5)       Early recoupment of the purchase price

 

          A representation, also denied, that, by purchasing a CPD delicatessen franchise business, the applicants would recoup the purchase price of the franchise within two years of operation was also pleaded.

 

          Neither applicant gave any evidence that such a representation was ever made.  Tomlinson did say that, in the course of a meeting he attended with Sgambellone, Malovany and Mrs. Tomlinson at a quite early stage of his discussions with CPD about the proposed Cleveland store which Sgambellone then said was available for about the same figure that the Tomlinsons later paid for the Capalaba franchise, Sgambellone said words to the effect that the Tomlinsons would have the opportunity, if they bought the Cleveland store, to make substantial returns on their investment and to recoup their outlays in two years.  But Tomlinson did not suggest that a similar statement was made by Sgambellone in respect of the Capalaba store.  He touched on the topic when he gave evidence that, in the course of his visit with Clifton to the Capalaba store, Harmer said that if he had the money he would buy the Capalaba store himself and, at $2,000 a week net profit, he would only have to work a couple of years before he could retire.  Tomlinson also said that later the same day, at CPD's Brisbane office, Sgambellone said to him words to the effect that at a return of 38, he would be able to pay back any loan in two years.  According to Tomlinson, it was only after these various comments were made that Sgambellone for the first time mentioned the price of the Capalaba franchise to him.  Neither of these statements concerning the Capalaba store provides a foundation for a finding that the representation alleged was made (although, if accepted, this evidence would be consistent with the making of such a representation).  As I have indicated, I do not feel able to place a great deal of reliance upon what Tomlinson says, unless it is supported by independent evidence.  He is not corroborated by either his wife or Clifton in what he says was discussed in their presences that touch on this issue.  While what Perrson recorded Sgambellone as saying to her, in the course of his urging her to buy the Capalaba franchise about being able to make a couple of hundred thousand dollars on the sale of the business in 12 to 18 months does provide some support, in a general way, for what the applicants assert was said about the soundness of the investment represented by the Capalaba franchise insofar as it would yield him a rapid capital gain, I am not prepared to find that the representation alleged was made.

 

(6)       Substantial returns on the investment would be made

 

          The applicants alleged a representation that by purchasing the business, they would make substantial returns on their investment, something that has not happened.  The respondents say only that they told the applicants that some franchise owners had made good capital gains after improving the turnover of their delicatessen shops and that they made this statement in reliance on the history of sales of other CPD shops.

 

          I have already referred to what Perrson taped Sgambellone as saying about how good an investment the purchase of the Capalaba franchise would be.  Tomlinson says that on various occasions, Sgambellone made comments to the effect that a CPD franchise in general and also the Capalaba franchise in particular constituted very good investment opportunities.  At their first meeting in late August, Tomlinson says that Sgambellone extolled the investment opportunity represented by CPD franchises; comments to the same sort of effect were also made, according to Tomlinson, in the course of discussions about Capalaba.  I have little difficulty particularly, given what Perrson's tape reveals of Sgambellone's approach to potential purchasers, in accepting that he sought to give to Tomlinson the impression that a CPD franchise, and in particular the Capalaba franchise, represented a very good investment.  But Tomlinson was not without business experience and I have already given my reasons for thinking that he was not overly impressed by general oral statements about the potential of such a franchise.  Even if what was said to Tomlinson in this regard is capable of amounting to a representation rather than being mere puffery, I do not think it is likely to have had any effect on Tomlinson in causing him to acquire the Capalaba franchise.

 

(7)       Bulk purchasing benefits would be available

 

          A representation was pleaded that the applicants would receive the benefits of CPD's bulk purchasing power, something the applicants say has not happened.  The respondents in effect admit this allegation.  The applicants' case, insofar as it was based on this representation, was not pressed, although it was not abandoned.  The evidence indicates that the applicants did receive these benefits.

 

(8)       Turnover of one-third of the Coles delicatessen

          would be achieved

 

          A representation, also denied, was pleaded that the applicants would achieve a turnover equivalent to one-third of the turnover of $60,000 per week of the delicatessen in the Coles Supermarket at the Capalaba Shopping Centre, something which there was no likelihood of them achieving.

 

          The representation here alleged is an unqualified prediction that the Capalaba store would achieve a turnover of $20,000 per week.  Notwithstanding the respondents' evidence, I accept Clifton's evidence that, at a meeting he attended with Tomlinson in mid-November 1990, Sgambellone expressed the opinion that Tomlinson should readily be able to achieve a turnover of $20,000 per week, that being a third of the $60,000 a week turnover of the Coles delicatessen in the Capalaba Centre.

 

          However, for the reasons given, I do not think Tomlinson placed any more reliance upon what Sgambellone said about this than he did on the other opinions expressed by Sgambellone, and others associated with CPD, that he could confidently expect to achieve a turnover of at least $20,000.

 

(9)       The business could be conducted profitably

 

          A representation was alleged that the applicants would conduct the business profitably whilst paying rental, finance payments, franchise fees and other outgoings, something they were not able to do.  The respondents admit the making of such a representation, but say it was qualified by statements that the applicants would be able to trade profitably if they increased turnover and gross profit, contained wages to an acceptable level and eliminated wastage of stock.

 

          There is no evidence from any of the applicants' witnesses that anything was said by any CPD representative that could amount to an express representation to this effect.  The difficulty in drawing out from the applicants' material evidence that would justify the conclusion that such a representation was made is that the comments extolling Capalaba as a profitable, and therefore desirable franchise which I am prepared to accept were made by Harmer and Sgambellone, were all made in contexts in which they were bound up with statements that profitability was closely related to the extra effort that franchisees, in comparison with CPD staff managers, could be expected to put into running the business and building up turnover.  I have referred to Clifton's confirmation of Harmer's account of the conversations at Capalaba in which Harmer commented on the profitability of the business.  Clifton's account of what Sgambellone told Tomlinson is to much the same effect.  Sgambellone, in his taped discussion with Perrson about the Capalaba store, emphasised repeatedly that it had great profit
potential, but only if the franchisee put a lot of effort into running the business and increasing turnover.

 

          I am not prepared to spell out, from the evidence which I accept on this issue and which comes essentially from Clifton and Perrson, any statements made by either Harmer or Sgambellone that are sufficiently explicit and unqualified to enable me to find that a representation to the effect pleaded here was made.

 

(10)      Resale at $20,000 for every $1,000 of turnover

 

          A representation was alleged that the applicants would be able to resell the business at a profit based on a sale price equivalent to $20,000 for each $1,000 of turnover, with a turnover of $25,000 per week establishing a resale value of $500,000, something they were unable to achieve.  The respondents admit only that the applicants were told that as a rule of thumb, CPD shops were usually sold at a price equivalent to $20,000 for each $1,000 of weekly turnover, a statement made on the basis of their knowledge of past sales of CPD shops.

 

          The only reference the applicants made in closing submissions to this representation was to include it, without comment, in the group of representations identified by them in one of their written submissions as relating to future matters.  They made no complaint about being told (as the respondents admit was the case) that CPD had fixed sales of franchises on the basis of $20,000 of price for each $1,000 of weekly turnover.  The complaint is thus that they were told that they could expect to sell the business in the future for $500,000 based on a turnover of $25,000 per week, in circumstances in which the respondents had no reasonable grounds for making that prediction.  In any event, all that Tomlinson said he was told by Sgambellone at their first meeting in August 1990 was that franchise sale prices were calculated on this 20:1 basis, a statement he says Sgambellone repeated at the 21 November, 1990 meeting.  Clifton confirms Tomlinson's evidence about the November 1990 meeting.  As I have said, the respondents admit all of this.  But Tomlinson gives no evidence that he was told he could expect to resell the Capalaba business for $500,000 because he could expect a turnover of $25,000.  Perrson taped Sgambellone saying, with respect to the Capalaba store:  "In a couple of years time when the shop is doing $20 to $25 grand it will be worth $500,000.00."  That appears to be the source of this allegation insofar as it asserts that a representation that the business could be sold for $500,000 was made.  I am not prepared to find that any such representation was made.  In any event, the applicants have failed to satisfy me that they placed any reliance on anything they were told about being entitled to expect a turnover of $25,000 and a consequent resale at $500,000.

(11)      The suppliers' rebates would be expended on

          advertising

 

          A representation was also alleged that a rebate of 4% payable to the first respondent by suppliers of stock to CPD franchise businesses would be spent by the first respondent on advertising, something which was not done.  The respondents admit telling the applicants of this rebate, but deny saying that it would be spent on advertising.

 

          Although this allegation was not abandoned, it was not the subject of any submissions on behalf of the applicants.  The only evidence the applicants gave that relates to this alleged representation is contained in Tomlinson's first affidavit.  In the course of describing the discussions he had with Sgambellone about the applicants' then intention to buy the Cleveland franchise, Tomlinson said that in explanation of why franchisees should buy only from CPD designated suppliers, Sgambellone said that CPD was paid a rebate of 4% by those suppliers, which went into a fund for advertising.  Sgambellone says that at his first meeting with Tomlinson, he mentioned that CPD got a supplier's rebate of up to 4% based on group purchases but that he did not say anything about the use to which CPD put these rebate moneys other than by saying that CPD used them at its discretion for whatever it needed to.  Hoefler acknowledges that he was rather more informative than Sgambellone and that, in the course of inspecting a number of CPD operations on one of Tomlinson's early visits to Brisbane, in describing CPD's relationship with its main suppliers, he told Tomlinson of the 4% rebate obtained by CPD and that it was used for a number of purposes, including advertising.  Even if what Tomlinson has to say is accepted, I would not be prepared to infer that the comment made by Sgambellone in the course of a general discussion about the Cleveland store was regarded by the applicants as sufficiently important to play a part in causing them to acquire the franchise of the Capalaba store.  Tomlinson never inquired further about the use to which the rebate was put and, in particular, never raised the topic when discussion turned to the Capalaba store.  I think it was just one of very many things Sgambellone said to Tomlinson at an early stage of their dealings.  There is nothing in the applicants' evidence that gives this comment by Sgambellone any more significance than that.  His decision to acquire the Capalaba franchise was, I think, based on more important matters, notably, what he expected to achieve in the way of turnover, gross profit and thus net profit.

 

(12)      The applicants would be comprehensively trained

 

          A representation was pleaded that the male applicant and his associate, Clifton, would, for a fee of $4,000, receive comprehensive training to operate a CPD delicatessen franchise, something which did not happen.  The respondents admit only the making of the representation.  The applicants' case, insofar as it relied on this representation, was not
abandoned, but was not the subject of any submissions by the applicants.

 

          Before the applicants committed themselves to the acquisition of the Capalaba franchise by paying over the purchase moneys on 17 December, 1990, they were well aware of the quality of the instruction Tomlinson and Clifton had received.  They did receive fairly extensive instruction at the respondents' Campsie store even though it may not have been as comprehensive or as useful as Tomlinson initially anticipated.  I am not prepared to accept that this representation, even if misleading to some degree, was relied on at all when Tomlinson made his decision to part with his money.

 

(13)      Non-disclosure of CPD's special discount

 

          The applicants also allege that, having represented to them that they would receive benefits due to CPD's bulk purchasing power, it was misleading for CPD not to inform the applicants that CPD obtained a special discount from suppliers for company-owned shops not obtainable by franchisee-owned shops.  CPD obtained from April 1990 until at least well into 1991, a price for its company owned stores from suppliers for the main product lines sold in all CPD delicatessens which was significantly lower than the prices regularly obtainable by franchisee owned CPD stores.  An admission was made in the course of the trial to this effect.  I do not accept that Sgambellone disclosed the existence of this special discount to Tomlinson.

 

          It further appears this special discount was at its peak in the period from about early 1990 to early 1991, amounting to a discount received by CPD-managed stores of the order of 4% of the prices paid for products that represented about 40% of all sales.  In this period CPD-managed stores would therefore have achieved a 1.5% or so better gross profit on the same turnover achieved by a franchisee-operated store, because of the availability to the former, but not the latter, of this special discount.

 

          According to Hoefler, he prepared the written estimate upon which I have found the applicants relied in deciding to acquire the business on the basis of, among other things, the Capalaba store's actual trading results under CPD management.  Accepting this, his 38% gross profit figure would necessarily have included the 1.5% special discount then being obtained by that store as a company-managed one.  It was therefore misleading for him to give Tomlinson the estimate based on a $16,000 turnover and a 38% gross profit that showed a net profit per week of $1,905.  Since it was given to Tomlinson as a picture of what was achievable by a franchisee, it should have shown (at most) a gross profit of no more than 36.5% and thus a weekly profit of $240 less than this $1,905.

 

          I am not, however, prepared to find that if Tomlinson had been told the true position about the special discount, this would have been sufficient to affect his decision to proceed with the sale.  He did not in his evidence suggest that such a disclosure would have caused him to turn his back on the purchase.  He relied, in my opinion, upon the information he was given about a gross profit of 38% being achievable on a turnover of $16,000 a week, which was itself also achievable because these figures suggested the availability of a substantial net profit.  Although a reduction of 1.5% in gross profit on a turnover of $16,000 would represent a reduction in weekly profits of $240 and annual profits of $12,500, Tomlinson would still have been entitled to expect a substantial net return.  In the absence of acceptable evidence from Tomlinson to the contrary explaining why that would have been his attitude and notwithstanding what was said in Gould v Vaggelas (1985) 157 C.L.R. 215 at 236, I am not prepared to infer that this non-disclosure was causally related to the applicants' decision to go into a loss-making venture.

 

DAMAGES

 

          It is well established that, as a general rule, the measure of damages in cases based on breaches of s. 52 the TPA is ordinarily that adopted in actions for deceit.  It is also well established that the difference between the real value of the business purchased at the time of acquisition and the price paid is the prima facie measure of recoverable damages; in addition, the plaintiff is entitled to recover all the consequential loss flowing directly from his reliance on the misrepresentation, at least if the loss is foreseeable:  Gates v The City Mutual Life Assurance Society Limited (1986) 160 C.L.R. 1 at 12.  But in following this approach, particularly in cases involving the misrepresentation of businesses, it is necessary to keep in mind the comments of Sheppard and Pincus JJ in Netaf Pty. Ltd. v Bikane Pty. Ltd. (1990) 92 A.L.R. 490 at 494, where their Honours said:

 

          "We reiterate that, where a purchase has been induced by misleading conduct, it is not enough, in order to recover losses subsequent to the purchase, to prove that but for the misleading conduct or as a partial consequence of it, the agreement to purchase would not have been made; that is so in every successful application of that kind.  It is not the law that in every such case the party held to have been engaged in misleading conduct (who may have acted quite innocently) becomes the insurer of the other's success and prima facie liable to indemnify him against the consequences of the purchase.  As the trial judge said in the present case:

 

              `To recover a loss sustained in the business, the applicant must show more than that it was sustained in the conduct of that business; for to show only that is to establish what is perfectly consistent with the loss having arisen from his own misguided management decisions, or even total neglect.'

 

          ..."

 

          The applicants made no trading profits although I think they managed the business in the two years they ran it with reasonable efficiency.  The business from 1986 under both CPD and Lee had a very poor trading history.  I find that the Tomlinsons lost the moneys they put into the purchase of the franchise by buying a business that had no capacity for making and maintaining profits; it was therefore worthless at the date of purchase.

 

          Although there are some areas in which the trading information kept by the Tomlinsons may well overstate their expenses attributable to running the business, such as the amount shown for telephone expenses, I accept that their tax accountant's figures, adjusted after the low turnover data initially given to him by the Tomlinsons was queried by Mr. Calabro to reflect the true turnover, provide a reasonably accurate picture of the trading results they in fact achieved in the period they operated the business from December 1990 to December 1992.  This data is sufficiently reliable to justify Calabro's conclusion that, even accepting that they paid only a minimal amount of what was due by them to CPD in respect of franchise fees and equipment rentals, they made no significant trading profits over the whole of this two year period.

 

          I have said I consider that the Tomlinsons managed the store in this period in a reasonably efficient manner.  Tomlinson had relevant business experience, having run a hotel for some five years.  Perrson and Ms. Ranson each have extensive delicatessen experience, including a considerable period with CPD itself.  Both worked at the Capalaba store in 1990 while it was under CPD management and again, for substantial periods, for the applicants.  Their evidence is inconsistent with the notion that the applicants ran a poorly organised operation.  Perrson and Ranson were not challenged in cross-examination.  They are independent of both parties.  Timms, who has been involved in the running of CPD franchised stores, gave unchallenged evidence to similar effect.  Calabro also points out that the average gross profit the Tomlinsons achieved over the two years they operated the business exceeded the industry average for delicatessens shown in the FMRC Business Benchmarks survey, a survey which the CPD expert, Mr. Edmonds, also appears to regard as authoritative.

 

          There is considerable criticism by CPD management staff of aspects of the applicants' operations at Capalaba.  To some extent, I think this is likely to have been coloured by the knowledge that Tomlinson, practically from the outset, was complaining of being misled by CPD.  In any event, the comments by CPD managerial staff are by no means uniformly critical.  CPD also relies on a comparison of the performance of the Capalaba store under CPD and the applicants' managements, with similar comparisons for the 11 other stores in Queensland, which changed from being company-managed to franchisee-managed between February 1988 and March 1991.  CPD submits this shows that Tomlinson's mode of operation of the Capalaba store was significantly inferior to that of other franchisees who bought businesses from CPD rather than from other franchisees.  Where possible, CPD compared turnovers achieved by its own managers over a 12 month period with the turnovers achieved by the new franchisees over a corresponding 12 month period.  This exercise shows that in 10 of the stores, the franchisees improved average weekly turnover by from 2 on what CPD had achieved, while in two of the stores, the franchisees fell short by up to 6% of CPD's average weekly turnover.  It is said that the average weekly turnover for the year in question achieved by the Tomlinsons was about 14% below that achieved in the earlier period by CPD.  I do not think this body of evidence makes the point suggested by CPD.  The comparison seems to me to be unfair to the applicants insofar as it takes into account four months of the period the Tomlinsons traded when faced with new competition, which may well have produced about a 25% decrease in their own earlier average weekly turnover.  According to Calabro, CPD achieved an average gross profit over the period from April 1990 to December 1990 of 33.24%.  The applicants, in the period from December 1990 to end of June 1991, i.e., prior to any impact from the increased competition, achieved an average gross profit a little below that, viz., 32.31%.  CPD's gross profit performance would reflect the advantage it had over the applicants in obtaining the special discount on main lines of product denied to franchisees, including the applicants.

 

          I generally accept Calabro's evidence as to the worth of the business as at 17 December, 1990.  Edmonds, for CPD, accepts that Calabro's approach of capitalising anticipated future profits is the proper method of valuing the business.  Edmonds estimates the net pre-tax profit of the Capalaba business by adjusting the actual trading results achieved by CPD in the four months July to October 1990 to arrive at an estimated annual net profit under franchisee management.  I do not consider that there is any defect in the theory Edmonds adopts here.  However, I do not accept that it is appropriate to ignore, as he has, equipment lease costs in adjusting CPD's actual net loss to arrive at the notional net profit a franchisee would have made on CPD's turnover for this four month period.  Edmonds set out to identify the unencumbered value of the plant and equipment, fixtures and fittings and goodwill of the business subject to the terms of the lease of the premises and the terms of the franchise agreement.  Obtaining access to essential equipment by means of some form of hiring is such a common and financially advantageous means of doing that for a small business operator that I think it artificial to treat equipment lease rentals as either an expense of a capital nature or interest on borrowings, rather than as an ordinary business outgoing like wages.  The error in Edmonds' approach is made even clearer when it is realised that, so far as concerns the particular business he was valuing, all any franchisee had to do to get access to the necessary equipment was reimburse CPD for monthly lease rentals paid by CPD - borrowing to acquire the equipment was unnecessary - and when it is also realised that the franchisee had only a right to use the equipment during the period of the franchise and no expectation of ever obtaining title to it at the end of the lease.  Given this, Edmonds' exercise, if otherwise valid, still shows a business incapable of generating profits and thus one which had a zero value as at 17 December, 1990.

 

          Edmonds also asserts that, in valuing businesses with what he describes as "consistent trading ratios", "Turnover is less susceptible to variation due to management style than is net profit and consequently the assessment of value on the basis of turnover is preferred technique", i.e., preferred to capitalising anticipated future profits.  I doubt the validity of this approach as a general proposition for the reasons given by Calabro, viz., that it is not uncommon to find businesses with high turnovers that make no profits and it is unlikely that a purchaser would be prepared to pay good money for such a business.  CPD relies upon Zycinski v City of Footscray (Gobbo J, unreported, 22 December, 1992) and submits that it demonstrates that there is no inconsistency between a business having a valuable goodwill and its having a consistent record of losses.  That may be so in special cases, e.g., in the case of a long-established and generally profitable business during what is considered to be a temporary down turn in its fortunes or in the case of a new business with a long lead time between start up and establishing its new but potentially profitable product in the market place.  But I do not accept that this is a rule of general application or a rule applicable to an established business like the Capalaba store.  Zycinski does not justify a contrary view.  It was an acquisition case.  The business in question had been very prosperous for many years.  However, it was effectively destroyed by the gradual implementation by the resuming Authority, over a period of about a decade prior to the acquisition date, of a ring road plan.  In reliance on the fact that for each of its last five years of life, the business made a net loss, the Authority's witnesses asserted that the business could not have any goodwill.  Gobbo J held that the Authority's witnesses had overlooked what he described as "a fundamental matter":  in assessing the market value of the business there relevant, viz., the business goodwill, the Authority was obliged by the acquisition statute to disregard any decrease in value that arose from the carrying out of the public purpose for which the business was acquired.  It was plain that, apart from the impact on the business of the gradual implementation of the ring road proposal, it would have been a very profitable one, with a valuable goodwill at the acquisition date.  Gobbo J therefore accepted that the goodwill had a substantial value, despite the history of losses.

 

          CPD also seeks to justify Edmonds' approach and to attack Calabro's approach by pointing to what it describes as "the established market proved by the [CPD] sales register", evidence ignored by Calabro.  It is said that the register evidences that there is a well established market in which prices for CPD franchisees are fixed by reference to the so-called rule that each $1,000 of turnover is reflected in a $20,000 price component.  There are a number of reasons why this body of evidence is of no assistance to CPD here.  Firstly, this sale was not a sale between franchisees, but by CPD itself to a franchisee.  The register expressly excludes sales by CPD itself from the analysis CPD made to identify the relationship between turnover and actual sale price.  That is only done for intra-franchisee sales.  Even if there is a market for intra-franchisee sales in which prices relate to turnover, CPD itself thus asserts that sales like the present do not conform to the price rules applying in that particular market.  Secondly, I do not think the sales register justifies the inferences CPD seeks to draw from it, in any event:  of the 41 intra-franchisee sales in the period January 1989 to December 1990, one quarter sold for from 20% to 62% below what the so-called rule of 20:1 would indicate.  The absence from the register of any mention of the profit record of the selling franchisee cannot, particularly in this circumstance, be assumed to establish that the purchasing franchisees paid no attention at all to that matter.  Although I do not accept Lee's evidence that CPD artificially inflated sale prices as between franchisees by causing overstated profit information to be provided to prospective purchasers, he produced material which establishes that CPD gave net profit, not turnover, figures when it advertised the sale of franchisee-operated businesses:  see exhibit C38.  Finally, the so-called market constituting intra-franchisee sales appears not to be a market made up of purchasers and vendors freely negotiating prices:  it may well be distorted to a degree by the control that CPD appears to exercise over the prices at which franchisees are permitted to sell their franchises, a control exercised in practice and reflected in cl. 11 of the deed of franchise of 5 March, 1991, although CPD may not have any legally enforceable right to fix franchise resale prices.

 

          Calabro's opinion was that the only value the business had was the realisable value of the assets used in the business.  The applicants did not acquire any title to any of those assets, only the right to use the equipment in exchange for assuming an obligation to pay a commercial rental for such use.  The value of such a right, taking into account the accompanying obligation, is, in my opinion, measured by the costs associated with the delay that would be involved in arranging the rental of substitute and commonly available equipment.  This is likely to be minor.  It was not suggested by CPD that anything should be off-set against the damages identified by Calabro as the loss of the applicants' investment for this.

 

          The Tomlinsons are entitled to recover what they lost by investing in the business, viz., the cash purchase price of $120,000 paid by them, the $4,000 paid by way both of deposit and training fee and the legal costs paid by the Tomlinsons in relation to the acquisition of the business from CPD of $7,150 mentioned by Calabro, a total of $131,150.  They are also entitled to interest at the rate selected by Calabro, 9%, from 17 December, 1990 on the whole of this sum until judgment.

 

          Calabro says that the applicants are not entitled to recover, in addition to the difference between the value of the franchise at the time they acquired it and the price they paid for it, anything in respect of trading losses, since none were suffered over the period they operated the business:  in fact, when looked at as a whole, a minuscule trading profit was achieved over this period.  I accept this as basically correct, although it needs to be qualified because of CPD's cross-claim for unpaid shop and equipment rental and franchise fees and because Calabro excluded from consideration, in determining that they made no trading losses, the payments the applicants should have made to CPD but did not make for franchise fees, equipment lease rental and some of the shop rental.

 

          But the applicants do claim, as consequential losses, damages measured by the value of the unpaid labour they contributed to the business over the whole of the two year period in question.  Calabro expressed the opinion that Mr. and Mrs. Tomlinson were entitled to an allowance, very substantial in his view, for the personal labour they put into the business without remuneration in the whole of the period they operated it, i.e., from December 1990 to December 1992.

 

          The first difficulty with this claim is that I accept that, from September 1991, new sources of competition, including Franklins supermarket, had such a detrimental impact on the business that, even if it were initially as represented, i.e., even if it were initially capable of turning over $16,000 per week and of achieving a gross profit of 38% under reasonable management, that new competition would be likely to have resulted in it trading, from September 1991, at a loss.  The average weekly turnover of the business from December 1990 to the end of August 1991 was $12,301, while for the period from 1 September, 1991 to the end of June 1992, it fell to $9,149, i.e., by about 25%.  So even if the business had initially conformed to the representations upon which the Tomlinsons relied in acquiring it, after September 1991, this new competition would probably have depressed turnover to about the levels initially achieved by them, with the result that the business would from that time have commenced to trade at a loss.  Souness was aware in April 1991 that Franklins were opening a store in about September 1991 in the extensions being made to the Capalaba Centre.  But no attempt was made to suggest that when Sgambellone and the other CPD officials were negotiating with Tomlinson prior to the latter's acquisition of the franchise, they were then aware of what Souness certainly knew a few months later.  It is therefore appropriate, in my opinion, to allow the applicants, at most, something in respect of their unpaid labour contributed to the business, but only for the period from December 1990 to the end of August 1991.  After that they cannot be said to be persons who suffered loss "by" the conduct that I have found CPD engaged in, in breach of s. 52 the TPA.

 

          Calabro has estimated, on the basis of award rates, that in the 38 weeks that Tomlinson worked to 10 September, 1991 and the 34 weeks that Mrs. Tomlinson worked to that same date, they would have been entitled to ordinary time payments and extensive overtime and other benefits, including holiday pay, totalling for Tomlinson, $36,200 and for Mrs. Tomlinson, $20,309.  It is, I think, unrealistic to assess the allowance for unpaid labour contributed to the business by Mr. and Mrs. Tomlinson by reference to award conditions.  They never lost award benefits that are available only to employees.  No attempt was made by the applicants to lead evidence that, if they had not purchased the business, they would each have found employment that would have yielded them something like the substantial sums assessed by Calabro.  It is probable that where a husband and wife buy a business in which each can work, they are prepared to accept a level of weekly remuneration and other benefits substantially less than those which award entitlements would yield, in return for the flexibility that goes with running a business together and for the opportunity to obtain capital gains.  There is evidence that people in managerial-sales positions, like that which Tomlinson occupied at Capalaba, work long hours on a flat salary:  Clifton, who was employed as Assistant Manager by the applicants from December 1990 to early April 1991, was not paid overtime despite the long hours he worked and Harmer of CPD was in a similar position.

 

          Edmonds, in estimating the value of the business by adjusting CPD's actual results for the four months ending October 1990 to arrive at an annual profit under franchisee management, accepts that allowance should be included for owner's remuneration.  On the basis of the FMRC Business Benchmarks survey, also relied on in another context by Calabro, he adopts 4.6% of turnover as a reasonable allowance in this regard.  I accept this as a sound basis for assessing the damages that should be allowed to both the Tomlinsons in respect of their unpaid labour in the period from mid December 1990 to end August 1991.  4.6% of the turnover they achieved in this period is nearly $21,000.  The applicants' cash book records drawings by them from the business of about $5,400 prior to the end of August 1991.  In addition, it appears from their tax returns that they took about $93 a week in stock for their own use.  I accept that that is all they drew from the business:  Souness in April 1991 reported to CPD management that their drawings were "minimal, to say the least", after full opportunity to examine their operations.  Over the period from December 1990 to end of August 1991 they therefore drew a total of about $8,000.  They are accordingly entitled to damages for consequential loss of $13,000, with interest from September 1991, but to nothing more.

 

          The applicants are entitled, subject to the first respondent's cross-claim, to judgment for $131,150, with interest at 9% for 4.6 years, i.e., $54,300, and for $13,000 with interest at 9% from mid way between December 1990 and end August 1991 to date, for 4.25 years, i.e., $49,725, a total of $248,175.

 

OTHER RELIEF

 

          In addition to damages, the applicants claim, by way of relief under s. 87 the Trade Practices Act 1974 (Cth), an order avoiding the contractual arrangements between the applicants and CPD.  This claim was the subject of cursory submissions only on behalf of the applicants.

 

          I have found that the applicants were induced to enter into the contractual arrangements with CPD by conduct in breach of s. 52 the TPA for which CPD was responsible; I have also found that the applicants suffered loss as a result of that conduct.  It is therefore open to the Court to grant relief under s. 87 the TPA.  Such relief is discretionary and the discretion is a wide one:  it is not constrained by the equitable rules governing rescission of agreements induced by misrepresentation, whether fraudulent or innocent, although the equitable rules provide a guide to the exercise of the discretion.  JAD International Pty. Ltd. v International Trucks Australia Limited (1994) 50 F.C.R. 378 at 380.  It follows that, in exercising the discretion under s. 87 the TPA, the Court will generally consider the conduct of the parties after the claimant had knowledge of the misleading conduct:  Henjo Investments Pty. Ltd. v Collins Marrickville Pty. Ltd. (1988) 79 A.L.R. 83 at 102.  And where, after the formation of a contract under the influence of misrepresentation, events for which neither party is responsible supervene, delay on the part of the claimant in rescinding, even where the claimant may be ignorant of the occurrence or of the true impact of the supervening event, may make it unjust to grant the claimant that equitable remedy:  see JAD International Pty. Ltd. v International Trucks Australia Limited, supra, at 387-8.

 

          Here, the applicants quickly learned of CPD's misleading conduct and promptly claimed avoidance orders under s. 87 the TPA by their application filed in May 1991.  But, in September 1991, new competition emerged which I have found would very likely have turned the business into a loss making enterprise, even if it had initially been as represented.  The applicants insisted on retaining possession of the premises and conducting the business for their own purposes, despite CPD's termination of the franchise agreement in April 1992 for non-payment by the applicants of the moneys due in respect of the equipment and in respect of franchise fees.  Throughout, until they abandoned the premises in December 1992, the applicants continued to use that equipment for their own purposes, without making any payment to CPD in respect of it.  In November 1992, I gave judgment, reported at 112 A.L.R. 122, on CPD's claim for summary judgment for possession of the premises which entitled the applicants to resist CPD's claim for possession only upon condition that they secure to CPD all moneys falling due in respect of their occupation of the shop and their access to the equipment in the shop between 27 October, 1992 and 2 February, 1993 (when the trial was appointed to commence).  It can be inferred that it was because of the applicants' unwillingness or inability to meet this condition that they abandoned the premises in December 1992.

 

          This is not a case in which the applicants' continued possession of the business can be treated as possession in a caretaker role only for the purpose of preserving the business so that restitution could be made upon the Court ordering avoidance of the agreements.  Instead, possession was retained by the applicants, for their own purposes, after knowledge by them of their right to claim avoidance and in the face of CPD's opposition.  Possession was retained against this background, in circumstances where supervening events, for which CPD was not responsible, occurred which detrimentally affected the trading capacity of the business.  I am not prepared, in these circumstances, to grant the avoidance orders sought.

 

THE FIRST RESPONDENT'S CROSS-CLAIM

 

          CPD claims both under the franchise agreements and at common law payment and compensation for unpaid franchise fees and for moneys due but not paid in respect of the applicants' use of the equipment and the premises.

 

          The applicants claimed only avoidance under s. 87 the TPA:  it follows that the agreements would continue unless and until the Court ordered avoidance (or until CPD lawfully cancelled the agreement).  This is in contrast to the position where a party to an agreement claims the right to rescind in equity.  See JAD International Pty. Ltd. v International Trucks Australia Limited, supra, at 380.  They have failed to obtain an avoidance order and CPD purported to cancel the agreements in April 1992 for non-payment of moneys due by the applicants.

 

          It is, I think, sufficient to treat CPD's rights as flowing from the position it contended for, viz., that it cancelled the franchise agreement as from 18 April, 1992.  Prima facie, CPD is entitled to the payments due under the franchise agreement in respect of the equipment, possession of the shop premises and franchise fees up to that time and to damages in respect of the applicants user of the equipment and the shop premises from April 1992 to December 1992.  However, franchise fees and equipment lease payments were not made by the applicants (save for some early payments in respect of the equipment) throughout the whole of this period to the end of August 1991.  If they had been paid, the result would have been that, up to that date, the applicants would have suffered a trading loss caused by CPD's wrongful conduct upon which they relied to enter into the franchise agreement, rather than the small trading profit they appear to have made in this period.  It follows that the entitlement of CPD to equipment lease payments and franchise fees up to the end of August 1991 is met by an entitlement in the applicants to damages for exactly the same total sum.  This would also be the position in relation to shop rentals, but the applicants paid all the moneys due to CPD in this respect up to the end of August 1991, and beyond, and those payments have been brought into account in Calabro's exercise as a result of which he included they made no trading losses.  CPD's claim in respect of shop rentals is limited to moneys not paid by the applicants in respect of May to July 1992 and October 1992.

 

          Given the findings I have made as to the impact of the supervening events, the applicants cannot show that, after the end of August 1991, they suffered any damage as a result of CPD's wrongful conduct.  They therefore have (apart from their plea of set-off) no answer to the cross-claim for moneys due to CPD from August 1991 to December 1992, when they abandoned the business to CPD.

 

          CPD claims franchise fees unpaid for the period 18 February, 1991 to 18 April, 1992.  It is entitled to payment of the fees for the period from the end of August 1991 to 18 April, 1992 pursuant to cl. 3.1 of the deed of franchise and the letter of acknowledgment of 6 March, 1991.  I have calculated this entitlement from exhibit A to Malovany's affidavit of 27 October, 1992 at $23,555 with interest at 9% from mid-April 1992 for 3.2 years to date, i.e., $6,900.

 

          I doubt that CPD has any entitlement under cl. 11.3 to reimbursement by the applicants of payments made by CPD in respect of the leasing by it of the equipment.  However, the applicants did not dispute liability to pay for their use of this equipment, subject to their claim for damages.  Nor did they challenge Malovany's evidence as to the payments made by CPD to AGC in respect of the equipment.  CPD's pleading is wide enough to entitle it to recover an amount equal to what it paid under this lease of the equipment from AGC from the end of August 1991 to the date claimed by CPD, October 1992.  I calculate this entitlement from exhibit B to Malovany's affidavit at $51,646 with interest at 9% from March 1992 for 3.33 years to date, i.e., $15,480.

 

          Despite what was contemplated by recital D of the deed upon sale and franchise, no sub-lease of the premises was ever granted by CPD to the applicants.  While CPD appears to have no contractual right to recover reimbursement from the applicants of what it paid to the head lessor for the rent of the premises, the applicants did not dispute at the trial their liability to pay CPD for their use of the premises, subject to their claim for damages.  Again, I think CPD's pleading is wide enough to entitle it to recover an amount equal to what it paid for rent of the premises for the periods that the applicants failed to make payment to CPD, i.e., for the period May to July 1992 and October 1992, a sum of $38,866, with interest at 9% for 2.75 years to date, i.e., $9,620.

          CPD thus has an entitlement on the cross-claim for $146,067 including interest.  But the applicants rely on their own damages claim as a set-off to CPD's claims in the cross-claim.  They are entitled to this set-off:  see Tomlinson v Cut Price Deli Pty. Ltd. (1992) 112 A.L.R. 122 at 126-127.  As between the applicants and the first respondent, there will therefore be judgment for the applicants for their claim against the first respondent reduced by so much of their claim as is necessary to answer that respondent's cross-claim, i.e., judgment for the balance of $102,108.

 

THE RESULT OF THE CASE

 

          There will be judgment for the applicants against the first respondent for $102,108.

 

          The tentative views I expressed as to the applicants' entitlement against the second and fourth respondents when on 12 July, 1995 I published my reasons for making my findings need revision, now that I have had the opportunity of considering the submissions I invited on this point.  The second and fourth respondents are prima facie liable to the applicants for the whole of the damages they have suffered by reason of the first respondent's misleading conduct in which each was involved.  These damages are limited to the losses the applicants suffered until August 1991, i.e., $248,175.  These two respondents are not parties to the cross-claim, on which the first respondent is entitled to recover from the applicants moneys that only fell due to that particular respondent after August 1991, i.e., after the loss-causing impact of the misleading conduct was spent.  It might therefore be thought that the fact that the first respondent can rely on its cross-claim to reduce the amount of its own liability, imposed by s. 82 the TPA, to make good to the applicants all the losses of $248,175 that the applicants suffered "by" the first respondent's contravention of s. 52 the TPA should not prevent the applicants looking to each of these other two respondents for the full amount of that loss.

 

          Section 82 the TPA, which must be read with the definition provisions of s. 75B the TPA, does, in my opinion, subject the second and fourth respondents to exactly that liability.  Just as s. 82 the TPA creates what was referred to in Wardley Australia Limited v The State of Western Australia (1992) 175 C.L.R. 514 at 525 as a "statutory cause of action" against the corporation that, by infringing s. 52 the TPA, causes loss to a person, so does it create in my opinion a separate statutory cause of action against each person who is involved, in any of the ways mentioned in s. 75B the TPA, in that contravention of s. 52 the TPA by the corporation.  I am unable to accept what was said in Trade Practices Commission v Manfal Pty. Ltd. (No. 3) (1991) 33 F.C.R. 382 at 385 insofar as it suggests the contrary.  The section on its proper construction imposes that liability on the second and fourth respondents here directly, and not because they are parties, in the sense in which that term is used in the criminal law, to the contravention of s. 52 the TPA committed by the first respondent:  "... it is significant that neither s. 75B nor s. 82 deem the accessory to have committed a contravention but rather proceed on the basis that in one or other of the specified ways he was `involved' in the commission of the primary offence.  Section 75B it can be said is procedural in the sense that it merely purports to indicate the various ways in which one person can be involved in the commission of a contravention by another to such an extent as to render it just that he contribute to recoupment of the loss suffered by others in consequence of the contravention.  In this regard it contrasts with s. 5 [the Crimes Act 1914 (Cth)] in that the accessory under s. 75B does not necessarily commit nor is he deemed to have committed an offence" per Fisher J in Yorke v Ross Lucas Pty. Ltd. (1983) 68 F.L.R. 268 at 270.  There is no ground for thinking that the intent of s. 82 the TPA is that persons involved in the contravention by a corporation of s. 52 the TPA who, in addition to the corporation, are made liable to make good the losses caused by the corporation's contravention are only jointly liable with the corporation and that they can thus escape having to satisfy that liability merely because an unsatisfied judgment may have been obtained against a straw corporation.  The remedies given by s. 82 the TPA are, I think, intended to ensure, to the maximum extent possible, that a party injured by a corporation's contravention of s. 52 the TPA will actually be able to recoup all the losses he has suffered.

 

          The liabilities that s. 82 the TPA imposes on each of the corporation that infringes s. 52 the TPA and the persons who are involved in the corporation's infringement are statutory, not tortious.  That employees who by their conduct fix their employer with vicarious and thus joint liability for the employees' torts at common law cannot govern the nature of the various liabilities imposed by s. 82 the TPA:  the nature of those liabilities is entirely governed by the proper construction of the statute.  These statutory liabilities are, for the reasons given, not joint, but concurrent in the sense that each of the corporation that contravenes s. 52 the TPA and the persons involved in that contravention are liable for the one loss, but by reason of different statutory criteria.  They are severally and concurrently liable for that loss, in the sense those concepts are explained by Glanville Williams in paras. 1 and 5 of Joint Torts and Contributory Negligence.

 

          Because s. 82 the TPA only entitles the injured party to recover "the amount of the loss or damage" suffered by the corporation's misconduct, that party cannot have double satisfaction by pursuing to judgment and execution both the corporation and the persons involved in the corporation's contravention.  But that is the only limit on the injured party's entitlement to seek full satisfaction for his loss from each of the persons liable under the section to make good that loss to him:  recovery of judgment against one concurrently but severally liable for the loss, without satisfaction by payment, is no bar to recovering judgment for the full amount of the loss against another of those so liable for that loss.  See B.O. Morris Ltd. v Perrott and Bolton [1945] 1 All E.R. 567 at 569-570 and Glanville Williams, supra, para. 9.

 

          CPD is, by reason of its successful counter-claim, able to prevent the applicants obtaining from it full satisfaction for the loss they suffered as a result of CPD's breaches of s. 52 the TPA.  But that does not constitute satisfaction of the applicants' right to recover from the second and fourth respondents the whole of the loss it suffered for which they, as well as CPD, are made liable to them by s. 82 the TPA.  It does not assist either of these respondents that another liable for the loss does not itself have to pay the full amount of that loss because it has an excuse for not having to do that.  Because the second and fourth respondents are concurrently but severally liable to make good the applicants' loss, neither respondent has any way here of discharging his separate liability to the applicants other than by payment of so much of the amount of the applicants' entire loss as has not been paid by the other or by the first respondent.  This is so whether the subject matter of CPD's claim is treated as a cross-claim or as a set-off against the applicants' claim on it.  The raising of a counter-claim does not extinguish the claim against which it is raised.  If separate judgments are given on claim and counter-claim, the underlying causes of action are extinguished by merger and the judgments define the respective rights of the parties thereafter.  Nor does the mere raising of a set-off, as a true defence to a claim, extinguish pro tanto the claim in answer to which it is raised:  see Walker v Secretary, Department of Social Security (1994) 120 A.L.R. 123 at 130 and Re Sgambellone; Ex parte Jacques (1994) 126 A.L.R. 71 at 76.  The entry of judgment on any set-off against the applicants' claims to which CPD can be regarded as entitled extinguishes pro tanto the claim by the applicants on CPD itself against which the set-off is raised:  Walker, ibid; In re K.L. Tractors Ltd. [1954] V.L.R. 505 at 507.  But that cannot, for the reasons given, prevent the applicants demanding satisfaction of their entitlement to recover the full amount of the loss here in question from each of the second and fourth respondents (subject only to the prohibition against recovery of double satisfaction).

 

          The applicants are entitled to judgment against each of the second and fourth respondents for $248,175.

 

          The proceedings against both the third and fifth respondents will be dismissed.

 

COSTS

 

          I have also considered the submissions I invited on the question of costs.

 

          I do not think it is appropriate, in the circumstances of this case, to make an order for costs on the applicants' claim that reflects, in a precise way, the extent of their lack of success on a number of the issues which they raised in the action:  if the applicants had confined their case only to those issues on which they succeeded, I think that much of the evidence tendered by both sides would, in all probability, still have been led.  Moreover, while the applicants failed on a number of the issues they raised, that was not by any means always because I accepted the evidence of the respondents on those issues:  I rejected a considerable part of the evidence of the respondents' various witnesses on a number of matters as being unreliable.  I cannot, in any event, accept the respondents' analysis, based on transcript pages, of the time said to be spent on the various issues.  For example, this analysis overlooks the fact that much time was spent on the respondents' contention that the applicants managed the shop incompetently, an issue on which the applicants succeeded, and on the circumstances relating to CPD's equipment lease with AGC, another issue from the litigation of which the applicants received a forensic advantage.

 

          However, the applicants did pursue some issues, notably the allegation concerning what they claim they were told as to the value of the equipment in the store, which they were not justified in raising.  Not insignificant costs are attributable to such issues.  The respondents are entitled to some relief to reflect this consideration.  The first, second and fourth respondents will therefore have to pay only five-sixths of the applicants' costs of the proceedings.  Such costs will not include the costs of the direction hearing of 8 December, 1993, which were reserved:  that hearing was called by the Court to obtain confirmation from the parties that the trial would not have to be adjourned again, given that it had been previously adjourned because of the applicants' lack of preparedness, but also in circumstances in which the respondents were the subject of some criticism.  There will be no order made in respect of those reserved costs.

 

          The proceedings against the fifth respondent will be dismissed without any order as to costs, none being sought.

 

          An order for costs in favour of the third respondent is sought.  He is a senior officer of CPD who was sued in respect of what he did in carrying out his duties as such.  He was represented by the same counsel and solicitor who represented CPD.  CPD relied on the whole of his evidence in defending the applicants' claims against it.  He gave no evidence which was irrelevant to CPD's defence and relevant only to his own defence.  It would therefore be surprising if he personally has incurred any costs.  However, I will order that the applicants pay the costs personally incurred by the third respondent in defending the proceedings, if any.

 

          Since the first respondent succeeded on its cross-claim against the applicants, it is entitled to an order against the applicants for payment of its costs of the cross-claim, even though the only order I have made is an order in favour of the applicants against the first respondent which reflects the latter's success on its cross-claim, rather than separate orders on the applicants' claim and the first respondent's cross-claim.

 

 

 

 

 

 

I certify that this and the preceding

80 pages are a true copy of the

reasons for judgment herein of the

Honourable Justice Drummond.

 

 

 

Associate:

 

 

Date:         18 August, 1995

Counsel for the applicants:           Mr. F.W. Redmond and

                                      Mr. J.D.W. Linklater

 

Solicitors for the applicants:        Lynch & Co.

 

 

 

Counsel for the respondents:          Mr. J.P. Hamilton Q.C.

                                      and Mr. C.J. Whitelaw

 

Solicitors for the respondents:       Snelgrove & Partners

 

 

 

Dates of Hearing:                     22, 23, 24, 25, 29,

                                      30, 31 August, 1994

                                      and 1, 2, 5, 6, 8,

                                      12 September, 1994